Lump Sums, Running Royalties And Real Options

By Douglas Kidder, Vincent O’Brien, John Holzwarth and Johnny Chau

Douglas Kidder


Vincent O’Brien


John Holzwarth


Johnny Chau


Lump sums or running royalties; at first glance, it seems like a simple and relatively insignificant choice about the method of payment, but the structure of the royalty matters profoundly to both the licensor and the licensee. A running royalty is a form of metered pricing; the more you use, the more you pay. Lump sum is the all-you-can-eat buffet; you pay the same amount no matter how much you consume. There are many examples of metered pricing (video-on-demand, automobile rental, long distance telephone service, day-passes at the health club) and lump-sum pricing (buying the DVD of a movie, personal automobile purchase, tiered long distance telephone service, health club membership).

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